PROSOL is a facility under UNEP aiming at accelerating the penetration of solar water heating in Tunisia by targeting domestic financial institutions. Through a temporary interest rate subsidy (phased out 18 months after inception), PROSOL significantly lowered financing cost for installation by end-user. Loans – contracted through local financial institutions – could be repaid through utility bills. This provided enough guarantees for domestic banks to extend five years loans instead of the usual three-year term and an interest rate reduction. PROSOL overcame the capital cost barrier, through simple and affordable loans (whose repayment match monthly electricity bills) and proved an effective inducement for domestic banks (who carry 100% of the loan risk).

PROSOL has achieved some notable success with the capacity added in the year 2006 higher than the cumulative capacity installed in the entire period 1985-1996, when only a capital subsidy program was offered under a different non-UNEP program. Under PROSOL, more than 20,000 Tunisian families got their hot water from the sun from loans equivalent to $13 million in 2005/2006 – a substantial leverage to the $2.5 million initial cost.

The results achieved by PROSOL have led the Tunisian government to set a more ambitious target for solar water heating of 750,000 m2 in the period 2010-2014 – more than 80,000 m2 per year on average. If this target were met, the annual market for solar water heaters in Tunisia would become comparable to current levels of countries such as Spain or Italy with populations 4-6 times higher.

To reach this goal, a slightly modified scheme called PROSOL Residential was launched in 2007, which allows customers to obtain loans directly from banks. Developed entirely by local organizations without UNEP support, PROSOL Residential is evidence that the initial effort has helped create a self-sustaining market.

Financing

PROSOL differs from other support programs by targeting financial institutions and helping to develop markets through a range of institutional and financial support. The $1.7 million first phase of PROSOL provided:

Discounted interest rates on solar loans provided by banks and repaid through utility bills, and

Communications and promotion support.

Prosol has facilitated loans by Tunisian banks totaling USD12 million, five times the $2.4 million cost of the program.

Lessons Learned

Once the technologies are available market uptake is slow BUT markets scale quickly once banks start to lend. Many banks need help to get started:

Assessing technologies

Marketing new loans

Kick-starting demand

A typical goal of 10,000 loans will, at this scale, encourage partner banks toy continue on their own and others will follow. Lending gives a feedback signal that technology is mature -- policy makers take a technology more seriously once banks are lending for it.

Moreover, the PROSOL program includes integrating carbon reduction benefits. As of 2008, PROSOL Residential has helped avoid 214,000 tonnes of carbon dioxide emissions. The Tunisia project has also been submitted for consideration as a “programme of activities” (PoA) under the Clean Development Mechanism (CDM), which provides payment for the amount of greenhouse gases saved.

Since it is not a financial institution, UNEP can work in non-competitive ways with leaders in the banking community, turning the finance sector into an ally promoting clean energy.

PROSOL has led to an important policy change by the Tunisian government. Solar water heaters are now eligible for the energy subsidy that was previously provided only to LPG. The success of PROSOL has also prompted similar approaches in 11 other countries while Tunisia is looking into Programmatic CDM to scale up transformation building on the success of PROSOL.

The success of PROSOL has also prompted two new market support mechanisms under additional funding from the Italian Ministry for the Environment and Sea, and helped launch a new global GEF program. PROSOL Tertiary targets the tourism and services sector, and in since 2008, PROSOL Industrial has started to target industries able to use solar thermal heat in their processes. Since 2009, PROSOL ELEC aims to expand photovoltaic technology in the residential sector by providing a capital cost subsidy for 1000 buildings with an overall capacity of 1,500 kW.

The PROSOL umbrella has already demonstrated the extensive potential for replication and upscaling the numbers of end-users that can benefit from solar water heaters. PROSOL’s effective demonstration of the benefits to householders has convinced Governments to maintain some form of subsidy, encouraging many more consumers to install the systems. The application of this approach to the Tertiary sector (hotels) and industry is now also being demonstrated. By beginning of 2011, 13 hotels now get their hot water from the sun, and 16 hotels are currently installing solar water heating systems, totaling a surface of 1988 m2 and 42 feasibility studies were completed. PROSOL Industrial will begin targeting industries able to use solar thermal heat in their processes, by the end of 2010, 40 prefeasibility studies were completed and we foresee to complete the financial mechanisms for 3 pilot projects by September 2011.

Since April 2005 almost 20,000 Tunisian families now obtain their hot water from the region’s abundant sunshine because a UNEP-Tunisian Government initiative helped them obtain a loan to buy and install their rooftop solar system.

The banks play a fundamental role in PROSOL, providing the financing to develop the solar water heater market, accounting for about 70% of the total capital mobilized. However, the loans were effectively driven and secured by the solar suppliers accredited by ANME.

Under PROSOL, the customer could pay the loan via their electricity bill. This provided enough guarantees for banks to extend five year loans instead of the usual three-year term, and an interest rate reduction. PROSOL essentially “bought down” the interest rate for loans by 7%, resulting in a rate charged to the initial customers of 0%. Later customers then had to pay higher rates once UNEP’s subsidy was phased out, although still low by commercial standards due to the utility billing decreasing the loan default risk.

Subsidizing the finance cost of a solar water heater has proven to be an effective inducement for banks to participate, and it also overcomes the capital cost barrier since customers can now take out an affordable loan, with payments that match previous outlays on LPG.

However, in terms of risk sharing, the banks employ the normal lending procedures for any other type of product, such as a household appliance. This means the banks – and not a public agency - carry 100% of the loan risk.

The initiative, Programme Solaire - or PROSOL- is a joint effort of the Tunisian Ministry of Industry, Energy and Small and Middle Size Enterprises, the National Agency for Energy Conservation of Tunisia (ANME), the Italian Ministry for the Environment, Land and Sea, and UNEP. In addition to ANME, PROSOL’s partners include: